Private credit demand growing faster than inflows

Antares Capital president and head of asset management Vivek Mathew has said the total addressable market (TAM) for private credit is growing faster than the volume of capital flowing into the sector.

Speaking to Brian Vickery for McKinsey’s ‘Deal Volume’ podcast on private markets, Mathew said the TAM for private credit was looking attractive.

“Private equity has raised a lot of capital. So even though spreads are tightening, the market opportunity could increase quicker than the capital is coming in,” he said.

“Just because private equity has raised the money, we want to make sure they spend it responsibly. If they’re struggling to find opportunities and have to sacrifice quality, then that will lead to more defaults and worse credit outcomes for us and our investors.”

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Mathew pointed out that, while M&A had slowed down in recent years, there were now signs of it picking up.

He also said the stock market was performing well, “so private equity firms are waiting to sell companies to catch rate breaks or grow the EBITDA of the business to have a higher valuation.”

There is also a growing eye to returning capital, he explained, which is a catalyst for M&A, although lower rates would help with this.

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Mathew predicted that there would be higher losses in 2024 and 2025 than in recent times, but also that there would be more opportunities to restructure.

“When we think about peak losses that we’ve seen in the industry, in the 2008–09 period, we saw about a 1 percent loss, which is worse than now by a long shot,” he said.

“Just because losses in the near future may be higher than they have been doesn’t mean it’s not a good time to invest. In fact, we think this could be one of our best vintages, even if losses go up a little bit.”

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